Murphy blasts McConnell for suggesting that states go bankrupt

Gov. Phil Murphy hammered U.S. Senate Majority Leader Mitch McConnell for suggesting states bleeding revenue due the impacts of the coronavirus should be allowed to go bankrupt, rather than provide billions in aid for what his office called “blue state bailouts.”

Murphy said the state’s choices will be dire, draconian cuts without federal help – then unloaded on McConnell.

“My breath is taken away. I have almost nothing to say to what I read Sen. Mitch McConnell of Kentucky said earlier today that in fact it wouldn’t be necessarily a bad idea for states to go bankrupt,” he said.

“Really? This is the time, in a moment of crisis unlike any our country has faced in at least a hundred years, to suggest it’s a good thing for states to go bankrupt?” Murphy said. “C’mon, man, that is completely and utterly irresponsible. There’s no level of responsibility associated with that.”

Murphy said states wouldn’t file for bankruptcy in response to the pandemic even if it was an option.

“As usual, he’s dead wrong. Because that won’t happen. We won’t go bankrupt. You have my word we won’t go bankrupt,” Murphy said. “But you know what will happen? We will gut the living daylights in every state in America out of the services, the exact services, that our citizens need right now.

“We will just cut, cut, cut and cut,” he said. “We won’t go bankrupt, senator. But we will leave our citizens in the lurch. At their most profound hour of need, we will leave people on the beach, alone, helpless.

“That is what will happen in New Jersey, and I might add, senator, without having spoken to your governor, that will happen in Kentucky. You have my word,” Murphy said. “So watch your words, sir. This is no time for bankruptcies and wishing bankruptcies. … This is the time to stand up on a bipartisan basis and be there for the states in America, not just the states’ sake but for the American people. Please, God.”

Murphy noted President Donald Trump has indicated support for state and local government aid.

Murphy was responding to news coverage of an interview McConnell did with conservative radio talk-show host Hugh Hewitt, in which Hewitt mentioned that local governments can go bankrupt but not states before asking how a decision will be made about providing aid to states.

“We all have governors regardless of party who would love to have free money. And that’s why I said yesterday we’re going to push the pause button here, because I think this whole business of additional assistance for state and local governments need to be thoroughly evaluated,” McConnell said.

“You raised yourself the important issue of what states have done, many of them have done to themselves with their pension programs,” he said. “There’s not going to be any desire on the Republican side to bail out state pensions by borrowing money from future generations.”

McConnell said the decision about aid to states is different than providing assistance to small business, because those businesses were ordered to close by the government, or to hospitals, which have been overwhelmed by COVID-19.

Hewitt then said some states have been badly mismanaged, specifically with regard to their unfunded liabilities, and suggested the bankruptcy code might need to be changed to include states. He cited California, Illinois and Connecticut but did not mention New Jersey.

“I would certainly be in favor of allowing states to use the bankruptcy route,” McConnell said. “It saves some cities. And there’s no good reason for it not to be available. My guess is their first choice would be for the federal government to borrow money from future generations to send it down to them now so they don’t have to do that. That’s not something I’m going to be in favor of.”

The comments were in some ways reminiscent of a January 2013 news conference in which then-Gov. Chris Christie excoriated House Speaker John Boehner for delaying a vote on Superstorm Sandy recovery funds – with one key difference being that Christie torched a fellow Republican.

Murphy said he wasn’t seeking to be partisan and would have been just as forceful if a Democrat suggested that states should go bankrupt to the impacts of the coronavirus.

“Most folks have said responsible things, and they’ve left their partisan affiliations at the door, which is why I said I would be saying this about his statement whether he was a Democrat, a Republican, a Martian, a communist, whatever it is,” Murphy said. “It’s irresponsible, and it’s wrong.”

In a subsequent interview on Fox News, McConnell reiterated his position.

"We are not interested in revenue replacement for state governments," McConnell said. "We're interested in trying to help them with anything related to the coronavirus ... [but] we are not interested in solving their pension problems and all these other things that they would like for us to finance.”

McConnell said a decision on additional aid to states and local governments, beyond the $150 billion included in the CARES Act, will wait until at least May 4, when the Senate is due to return, and will be limited to coronavirus-related matters.

“We’re not gonna let them take advantage of this pandemic to solve a lot of problems [and] bad decisions they’ve made in the past,” McConnell said.

Senate President Steve Sweeney, D-Gloucester, said Tuesday that next month’s coronavirus recovery package should include $5 billion for low-interest loans to state and local governments to stabilize pension plans, which have taken a hit with the stock-market tumble in the past two months.

Twenty percent of the loan proceeds would have to be invested in revenue-generating infrastructure projects such as asset transfers, toll roads and bridge or tunnel projects.

“This is not about Illinois or New Jersey. It is about the country. It is a loan program that will be paid back in full with interest,” Sweeney said. “Loan proceeds would have to be put irrevocably and directly into pension funds to reduce the unfunded liability, and borrowers would be required to maintain actuarially required contributions into their pension funds. The nation needs a program like this now.”

Assemblyman Ned Thomson, R-Monmouth, said such a rescue should require pension changes.

“Using low-interest federal loans would be like paying off high-interest credit cards with a debt consolidation loan,” Thomson said. “But that only works if we stop the liability from growing. The state must enact reforms to ensure its retirement systems are managed responsibly for years to come.”